Oil Tests Resistance At $43.50 As Hurricane Laura Gains Strength

Oil Video 26.08.20.

Crude Oil Inventories Declined By 4.7 Million Barrels

EIA has just released its Weekly Petroleum Status Report which indicated that U.S. crude inventories decreased by 4.7 million barrels. This report is mostly in line with yesterday’s API Crude Oil Stock Change report which showed that crude inventories declined by 4.5 billion barrels.

Interestingly, crude oil imports increased by 185,000 barrels per day (bpd) from previous week so the decrease in crude inventories happened at a time when imports were rising, highlighting the strength of demand.

Gasoline inventories decreased by 4.6 million barrels which is not surprising in the last weeks of the driving season. Meanwhile, distillate fuel inventories increased by 1.4 million barrels.

Recently, I wrote that the sudden increase in the number of U.S. rigs drilling for oil will ultimately lead to the increase in oil production. As it turned out, this development had an immediate impact on production levels since U.S. domestic oil production grew from 10.7 million bpd to 10.8 million bpd.

In the longer-term, the growth of U.S. domestic oil production may put some pressure on oil prices, although it’s too early to tell whether production will be able to settle firmly above 11 million bpd anytime soon.

In the short term, the production increase will be short-lived due to the recent shutdowns in the U.S. Gulf of Mexico.

All Eyes On Hurricane Laura

U.S. Gulf of Mexico producers have already shut down more than 1.5 million bpd of oil production, and traders’ focus has shifted to the potential damage from the hurricane.

Currently, Laura is a Category 3 storm, but it continues to gain strength and could reach a Category 4 status in the upcoming hours.

U.S. Gulf of Mexico producers have significant experience with hurricanes so most analysts believe that production will be quickly restarted once Laura loses strength.

At the same time, the fate of refineries on the shore is unclear at this point. In case Laura deals significant damage to refineries, the hurricane may have a bigger impact on the market compared to the current situation when WTI oil still struggles to settle above the nearest resistance at $43.50.

For a look at all of today’s economic events, check out our economic calendar.